updated 09:29 pm EDT, Thu June 13, 2013

BMI accuses Pandora of using FM purchase as end run around license laws

Just over 24 hours after Pandora announced that it had acquired a terrestrial FM radio station in an attempt to pay less in music licensing fees, BMI filed suit in New York accusing Pandora of duplicity as it wrangles new music licenses. The music industry company suit is asking the court to order "reasonable, market-driven fees for Pandora" seemingly implying that it had not given Pandora such terms, and calling the purchase of the radio station a "stunt."

The lawsuit also charged that Pandora's acquisition of the ratio station is "an open and brazen effort to artificially drive down its license fees ... for the expressly-stated purpose of 'qualifying for the same RMLS license under the terms as our competitors.'" Media conglomerates with both broadcast stations and online streaming of the broadcast do pay a lower rate than online-only broadcasters, but no terrestrial radio station runs a service like Pandora. According to Pandora, the purchase of the FM station qualifies it to pay lower royalty rates than online-only broadcast companies.

BMI notes the unique situation involving Pandora-owned FM radio. In the suit, BMI counters that the lower rates are only appropriate to "new media transmissions," meaning Internet radio, by extant terrestrial radio providers and "does not cover primarily Internet-based music streaming service that happens to own a single radio station in a city with a total population that is less than 0.045 percent of Pandora's online membership."

Following the purchase, and allegations that Pandora was trying to swindle the music industry with the purchase, a Pandora spokesperson said that "Pandora values and respects those who create music and seeks to pay a rate that is fair to all artists, and fairness needs to account both for what artists receive and what Pandora's competitors are asked to pay. In a good faith attempt to avoid a protracted disagreement, Pandora offered to pay ASCAP higher rates than it currently pays, but ASCAP refused, choosing instead to enable the publishers to try to extort even higher rates through a scheme of 'selective withdrawals.'"

"At the same time," the statement continues, "ASCAP agreed to the lower licensing rates with the RMLC, which was approved by the rate court, and extended these lower rates to virtually all of Pandora's competitors, including iHeartRadio, Pandora's largest competitor. This is not a case of Pandora trying to pay less. It is a case of publishers discriminating against Pandora."